Month: August 2011

I did an article for Green-blog a few days ago, called “the Patriot tax”. This details the fact that the wealthy will have to accept paying much higher taxes in future, if the current deficit crisis is not to become much more serious. This would not only be the essence of patriotism (saving ones country from ruin) but also financially sensible, given that if major nations do get into financial difficulty it will be the rich who will loose the most.

In short it is necessary for certain people to overcome their aversion to paying taxes, particularly wealthy Americans. Casing point, they’re filming a movie here in Glasgow (something about Zombies) which is supposed to be set in Philadelphia, but they’re filming it here for “tax reasons”. They’ve had to transform parts of Glasgow city centre into a US city complete with US style street signs, traffic lights, and vehicles. All shipped over from the US. All this to avoid paying a tiny bit of tax!

Ironically enough, there was another film a few years back set in Scotland, which was mostly filmed in South Africa (ya that looks so much like Scotland). I can’t remember the name of it (Dooms day?), same story thought (man meets girl, girl get her kit off, turns into zombie and eats his brains…usual Hollywood stuff!). Again one of the reasons for moving some of the filming to SA was “tax”.

I don’t know how the IRS collect taxes off of movie studios but I assume it involves the use of a pliers and a blow torch if they’re prepared to go to such extreme measures to avoid paying tax.

Anyway, have a read of the article on Green-blog if youre interested!

Last week it seems the months of stalemate in Libya was finally broken as the rebels succeeded in sweeping into Tripoli. And then the unthinkable happened, the long drawn out show down in Tripoli did not occur as the resistance of the Gaddafi regime simply seemed to melt away.

Or was it that unbelievable that Tripoli could fall so easily? Like most dictatorships Gaddafi was kept in power by a small number of a few tens of thousands of loyal supporters, mostly his cronies or members of the secret police who basically threatened the rest into submission and kept the rank and file in the army in check. Once the rebels swept into Tripoli last week this fragile network collapsed and in then end the bulk of the city fell with minimal force. Within hours Green Square (sorry martyr’s sq) was taken and street sellers were already out selling kiss me Im revolting or Im with Megrahi (as opposed to Im wt stupid) commemorative T-shirts.

While all the ground fighting was conducted by the rebels, clearly western air power played its role. Also, I noted a quite a few of the rebels wielding American made M-16 and AR-15 rifles. I am unaware of any situation where Libya purchased such weapons before the civil war, thus suggesting that they got them off the Americans. Also, the rebels have been using tanks. While most are creaky old T-55s as I pointed out in a prior post, using tanks successfully in an urban area is not easy task, and it suggests that theyve been getting some pointers from military instructors, possibly from NATO. And it is all but certain that NATO forward air controllers would be in on the ground co-ordinating strikes. So while the bulk of the heroics are clearly down to the rebels, the fingerprints of NATO is all over the place.

So its all over bar Gaddafis inevitable Downfall moment, right? Sadly no. There are still quite a few people in the country who support Gaddafi, notably those in his tribal heartland of Sirte, as well as quite a few pockets of Tripoli and various other desert settlements as well as some of his remaining mercenaries. These people are not going to go down without a fight and there is a risk of a blood bath if conflict continues. Alternatively there is no guarantee that the rebels will be able to take these strong points and NATO will be reluctant to supply air cover due to the presence of civilians.

Clearly some peaceful solution needs to be worked out. This could mean excusing certain people for their past involvement in the regime, in exchange for them supporting a peaceful transition of power. After all, the goal is to wind up with a democratic country and if, say, Sirte wants to elect some former Gaddafi loyalist as its mayor, well they’ll sort of have the right to do that. Its clear from the pronouncements of the Transitional council in Benghazi that a peaceful resolution is theyre plan. However implementing it on the ground among the chaos of civil war will be no easy task. The worst case scenario is that some of these ex-Gaddafi loyalists going to ground, or being driven to it by a rebel massacre, and launching an insurgency that will drag on for years.

Another problem is the state of the Libyan economy. Many millions of people havent worked for 6 months and the effect of this on society is crippling. Libya has gone from one of the wealthiest states in Africa to something resembling Somalia. There is a need to get people back to the nine to five routine (although someone from Libya tells me its more of a 6am to 2pm due to the heat!), get the shops open and the wheels of industry moving. And yes that means getting the oil flowing again, more for Libyas benefit than the rest of the world. Also, there is a need to get the police out on the street and the courts up and running and the hospitals dealing with regular stuff rather than war casualties. And ultimately elections will have to be held as soon as possible so that the people can have confidence that the sign is not been merely changed on the door.

It is of course for these very reasons that the temptation to punish the rank and file supporters of the previous regime must be resisted. The worst decision taken by the Bush Adm after invading Iraq (well aside from invading in the first place!) was to dissolve the Iraqi national army and fire the many millions of Iraqis who were members of the Baath party (many of whom were only members because they wont have a civil service job if they hadnt joined). The result was instant anarchy, the US lost what limited public support they had and just a few weeks later the first IEDs started going off. It is crucial that the Libyans avoid making this mistake.

Certainly, some comforting signals are coming out of the country. There are few stories of looting within Tripoli, aside from within property owned by Gaddafis cronies. The Transitional council is making the sort of noises that it should be making. They are anxious to move to Tripoli as soon as its secured. However, their ability to influence matters on the ground is still open to question. Unfortunately its a little too early for us to start writing Gaddafi’s obituary. Having won the war, which is still in the balance, can the rebels now win the peace, as that has usually been the stumbling block in many past revolutions.

If youve been following recent news events in the US and eurozone youll be aware that we seem to be either in the middle of, or on the verge of, a major sovereign debt crisis. From the possibility of a default from some troubled eurozone country like Ireland or Greece to the amateur theatrics played out in Washington last week and now the down grading of the US credit rating. In both these cases, America in particular, it has been the ineptitude of clueless (and largely spineless) politicians that is the real cause for concern, rather than events in the treasury department, the chances of an actual default in the short term were always slim (as Steph Flanders at the Beeb points out). But as I pointed out here, events have now shown how US politicians are arguably powerless to truly do anything about the debt crisis as nobody in America, neither Democrat nor Republican, wants to see big cuts in public spending, nor taxes going up (and the Republicans are probably the worst offenders, see my comments on that here) so its unlikely the matter will get solved before the US goes over the cliff. And the eurozone debt crisis involves similar political problems (as I discuss here).

But what exactly happens when a country defaults on its debts? What if a government goes bankrupt? While smaller nations run by foreign puppet dictators have gone bankrupt from time to time (often deliberately so, read Confessions of an economic hitman), never have we had to worry about a major western country going this way. We’ve certainly never faced the prospect of several major economies defaulting more or less at once and until a few weeks ago the mere thought that the US could one day default was seen as unthinkable (well to the economists, I’ve been saying its probable for many years now). Thus there is in essence no procedure for how to handle this situation. I mean if a country refuses to pay off it debts, its not as if the Chinese can slap a repossession order on the White House or that Goldman Sachs can send some guys around to beat up the Greek President with a tyre iron tho it seems the Greek people and a small dog are doing a fairly good job of that anyway!

Listen to the economists and theyll tell you that if, say, Greece were to default on its debts (some of it owed to them of course!) that a Black hole would open in the Aegean and swallow the country whole I mean shortly after the financial crisis in Iceland which did indeed default on its debts didnt the whole Island blow up and sink back into the Atlantic? As we will see, this fearmongering takes things to something of an extreme and can be discounted. But certainly there are some potentially nasty consequences if a country defaults on its debts which we need to be concerned about. In this article I will explore these issues, in particular the possible impacts for the man on the street and future energy use.

I should note from the start that Im not an economists, thought given the mess theyve made of the global economy I think that makes my two cents on all this more reliable!

When is a default not a default?

Firstly it would be fitting to define what we mean by a default on ones debts. Granted with you or me its pretty clear cut (I ring up the loan company, call them scum and post them the shredded remains of the contract), but with governments it comes in varying degrees.

For example the policies of the US right now, Quantitative Easing, low interest rates with high inflation (relative to current economic conditions) and a failure to properly defend the value of the dollar could be considered a default as it were by default (if youll pardon the pun). Or as its called in the industry a “soft” default.

Consider that prior to the US credit downgrade on Friday, US treasury bonds were averaging a 10 year yield of just 3%, but US inflation rate is officially 3.6% (unofficially around 6%) and the US dollar has depreciated in value against foreign currencies since the start of the financial crisis, about 5-12% per annum depending on which currency we compare it to, even against the Euro its down about 7% over the last year despite the euros many woes. Add it all up and anyone holding US treasury bonds is loosing money on those investments with every day that they hold on to them.

So in essence I would argue that the US is already in a state of default, and that AA+ rating is still not worth the paper its printed on. Indeed given that several Eurozone countries, such as Greece have technically not yet defaulted on their debts (though some default is probably now inevitable) but have had credit ratings reduced to junk status, yet the US is arguably in default and its rated AA+. What gives? This should show you how bias the rating agencies are against the Eurozone and favourable towards the US and UK. The fact that many of these same rating agencies are based in London and New York (so the rating agency staff have savings and a mortgage in US/UK bank accounts) and have strong financial ties to companies heavily invested in the US, many of whom were taking bets against the euro for some time, is all purely coincidental (and if you believe that here’s some magic beans for you to buy!).

While in the short term treasury bonds will still be purchased, largely because the dollar is still seen as a safe haven and there are strong political reasons for China, Middle East oil producers and the Japanese to support the dollar, these conditions are temporary. If the US doesnt get a hold of its problems, or if the political winds change (China and America fall out over something), or the Eurozone crisis blows over and the euro gets viewed as a better safe haven or the Chinese begin to use theyre currency as a global reserve currency (a beeb article about that here) then Washington, New York (and the rating agencies) will be in big trouble.

A more serious default situation could occur where for example a debtor promises to honour its debt obligations, but not pay any interest on them (youll get your money back, but it would be worth a lot when were finished and youll make zero profit) or more serious again, it opts to give investors a so-called haircut as happened to investors in Irish banks back during the Irish banking crisis. As part of the initial negotiations to the IMF the Irish proposed a similar policy towards international lenders (who after all have to share some of the blame for lending recklessly to Irish banks) but this was blocked by the US treasury department (main street bailing out Wall street yet again, see Morgan Kellys, aka “Dr Doom’s”, very informative article which mentions this here).

The worst case scenario, a nation simply refuses to pay anything back (the head of central bank comes out, breaks open the state piggy bank to reveal nothing but a few penny sweets and gum rappers), a so-called “hard” default, in which case investors stand to loose pretty much everything. So depending on these scenarios what happens next? And what is the impact for the average Joe?

Busted

Firstly its worth remembering that the bulk of national debts are held by other nations, typically lender nations such as China, Japan, German, Austria, Scandinavia, the Gulf States, etc. So in theory the consequences of a default are largely political. Lets face facts most governments squander cash sufficiently well by themselves that they are hardly in a position to complain if another government does the job for them, and furthermore the lender shares some of the blame for lending money recklessly in the first place. Usually such lending was undertaken for poltical reasons, and the politicians in the lender state need to take some of the rap for ignoring economic advice.

So the likely outcome in many cases is the only end result is a lot of awkward moments at international group hugging fests (G-8, G-33, UN, etc.). For example Ireland is being put under pressure by some to raise its rate of corporation tax. One can see the Chinese getting a bit more bullish if the US defaults on them. Indeed they are already fuming. But its not as if they can declare war or something then again, wars have been started over a lot less than a few trillion dollars!

The danger is that if the lender nations get burned they will be more reluctant to lend in future and charge higher interest rates. That could have negative consequences well discuss later. Also some lender nations, and I specifically mention Japan, could be in financial trouble if certain debts are not repaid (as Japan has financial problems of its own making right now due to 8 years of economic stagnation and the recent Tsunami). Thus a default of say, Italy, could trigger a default of France or a default of America could cause Japan to default. This could lead to a contagion of debt spreading from country to country leading to a chain reaction of sovereign defaults.

Ben Bernanke and the Masters of the Universe

But quite a lot of sovereign debt is held by financial institutions (pension funds, hedge funds, private equity firms, banks, drug dealers, money laundering operations, ponzi schemes, etc.). What do the banks do if a country defaults on them?

Well in theory what they do is go whistle dixie! Capitalism is a game of win some, lose some. Deals do go bad, money is lost, but the returns on the deals that succeed outweigh these losses and result in a net profit. That’s the rules of the game. These financial institutions should be hedging theyre bets to account for the possibly of a sovereign default. And quite honestly, you start charging Greece 20% interest on its loans (as was the case at one point in the recent crisis) and you dont anticipate the risk that they might default on that loan, you need youre head examined! Even the goon squad of a back alley loan shark can figure that one out. Whats that you say? Its all the rating agencys fault as they rated sovereign debts AAA ..same as they did to the sub-prime mortgages and Enron and LTCM, Worldcom, Bear Sterns, Lehman Brothers, Fannie/Freddie ,etc. Fool me once, shame on you, fool me twice, shame on me, fool me 234 times WTF is going on here! The warning signs of this crisis have been around for years if not decades, so theyve no excuses. And if they are unable to determine a risk that a five year old child could identify, then I fail to see how these bankers are deserving of their generous salaries.

But I digress! So capitalist theory would say the only outcome from such sovereign defaults would be that a few of the masters of the universe in these firms see their Christmas bonus replaced with a little pink slip.

Unfortunately, as the financial crisis of a few years ago showed, the money markets dont exactly work according to the rules of capitalism. Many of the spivs and speculators in New York and London got greedy in the boom years. Drunk on the high returns during the 2000s asset bubble they forgot about the lose some part of capitalism and did nothing to hedge theyre bets to consider the possibly of large numbers of deals going bad, as ultimately happened in 2008. Consequently now, as then, if a series of sovereign defaults were to begin this could trigger another banking crisis and a credit crunch. The only difference being that there will be no taxpayer bailout, as it would be the financial woes of governments which would be the trigger for the crisis. And with it clear the taxpayer got conned (again see Morgan Kelly’s article) by the last bailout I doubt the public would support another package of them, even if states could afford too.

Given that the links between the bond market trading floor and ones local high street branch (where Billy keeps his pocket money and Grandma has her little nest egg) have not been fully broken (they should have been, but they werent), there is a danger of this market contagion spreading right through the entire financial system right down to Main street itself. Now, this is the worst case scenario I stress, but it is indeed a risk. What happens then?

The Day After

So what happens after the above financial tsunami hits? A good example would be to look at Iceland yes its still there! And contrary to what the Wall street Journal would have you believe trolls did not descend from the hills and eat all the children. Here the countrys banks all but collapsed with the government refusing to bail them out and defaulting on any debt obligations related to said banks. Actually, the economy now seems to have turned a corner and things are slowly improving. At the end of the day, people still need to eat, sleep and drink and someone needs to supply goods and services. So rumours of Icelands economic death are greatly exaggerated.

Certainly everything is not rosy in the Icelandic garden, people are having trouble getting credit, there are issues with inflation, high unemployment and many are living under the risk of foreclosure. Indeed, its interesting to note that despite the Icelandic default its credit rating is higher than some eurozone countries who, like I said, have yet to actually default on their debts, go figure! But to say as that without banks, all economic activity will simply cease to function if the balloon goes up (as is the mantra youll hear from the right wing press) is simply not the case. And of course a total collapse of the entire global banking sector is a pretty unlikely, even in a worst case (sovereign debt crisis) scenario. Certain lending institutions, credit unions and building societies for example, are forbidden from investing in the sorts of funds at risk and should ultimately weather the economic storm. And not all financial institutions are vulnerable. For example, the Barclays banking group weathered the 2007 crisis better than most as it seems its board never fully bought into the whole Sub-Prime ponzi scheme (or so my spies tell me!).

But certainly there will be some negative consequences of a major sovereign debt crisis. Firstly, governments that are now addicted to debt will find they need to stop borrowing (cos nobody will lend to them!), balance the budget and make some effort to pay off creditors. This will mean some quite steep austerity measures being taken, with large scale redundancies in the public sector and steep tax rises. The Irish 2009 budget should be a wake up call for such countrys, America in particular. It will likely have to cut down (and possibly sell off) much of its surplus military hardware (and if that sounds fanciful note that much of the Yugoslav navy is currently still up for grabs, if youre looking for a bargain!) and military bases. Downtown property (some Federal buildings) and maybe even some national parks might be sold off, as well as its gold, sliver, oil and helium reserves. Its possible that the various DoE and NASA sciences centres (JPL, Livermore, ORNL) will be sold off to the private sector, merged or simply closed down. A good idea of the economic impact of this can be gauged from the recent shutdown of the US space shuttle program in Florida (see here). I would note that I’m not necessarily advocating these policies, merely describing a likely outcome of the crisis. So with many hundreds of thousands of unemployed civil servants, some of them with PhDs and impeccable qualifications, getting a job is going to be much harder. And with so much ex-government hardware and assets in the bargain bazaar, the world economy could well turn into a massive bear market with relatively low prices for certain commodities.

High inflation or even hyperinflation is also a risk. Thats good news and bad news. If you owe money it means the amount you owe in relative terms will decline. Several people who lived through the post-communist era in eastern Europe have told me how they were able to buy theyre houses quite cheaply when the mortgage they were paying on it got pretty much wiped out by high inflation. Unfortunately if you have savings or a pension plan, that will likely get wiped out too, so this is only good news if you dont plan on retiring .ever! And of course if the price of basics like food and fuel is rising quicker than wages (which might even be falling) then making ends meet becomes harder, doubly so if you dont have a job.

But its important to note that such issue would likely be temporary. As I noted there are parallels between the current crisis and similar problems that occurred in Eastern Europe and Russia post communism. In both cases reckless implementation of turbo capitalism (so called shock therapy) were to blame. But Russia and Eastern Europe did turn the corner and are now largely over this crisis, indeed most Eastern Europe economies are easily outperforming Western ones.

The Credit crunch to end all credit crunches

But it is the effect on the availability of credit that will be the real casualty of any sovereign debt crisis. The pendulum will swing from its current extreme (cheap NINJA loans easily available to anyone or any country who wants it) to the opposite extreme (see Merchant of Venice). Creditors, be it the Chinese or prudent savers (or indeed me with my little nest egg), will be increasingly unwilling to lend money and will demand higher rates of interest and strict financial guarantees in support of such lending.

Regardless of how financially prudent you think you are, we all need to rely on credit from time to time. Whether youre the Peoples Republic of China or Bridge Farm in the Cotswolds, on the 28th of every month you need to come up with the cash to pay your employees (and suppliers). And its not as if you can pay them with bits of the three gorges dam or Chelsie the cow! Given that there will inevitably be periods, where more is going out than is coming in, the ability to borrow money to meet such temporary short falls is essential. So if lenders all go as tight as a Scottish highland duck with constipation then that creates some major problems, as the necessary business of borrowing becomes harder and more expensive and this leads to a slow down in economic activity.

This potential credit problem could have grave implications in the longer term, particularly as far as our future energy options. Take the issue of renewables roll out. One of the down sides of renewables is that they come with relatively high capital costs at the beginning (thought lower costs later on as you dont need to worry about fuel, or stopping radiation leaking out and decommissioning or site clearance costs are relatively low). Also in order to fully utilise renewables we need to badly refurbish our energy disruption network. This would likely involve converting much of the natural gas grid to run on hydrogen or install a network of HVDC power lines (or as I suspect a bit of both) as well as all the other kit (cars, boilers, chemical works) that consume this energy. All of these assets come with a high initial capital cost, the idea being that you borrow a large block of capital and then gradually pay it off later using the revenue raised from selling energy over the 30-50 year life of the hardware, likely yielding a modest profit as well.

However, if the global credit markets freeze up, then raising the sort of capital needed to get these projects off the ground will be problematic at best and impossible at worst. And should anyone nuclear energy fans reading the above be feeling smug, I think youll find that the initial capital costs of nuclear are actually higher than renewables and nuclear is heavily dependant on state funding (as this report by Citigroup makes plain). Indeed its probable that one of the first causalities of a sovereign debt crisis could be many nations nuclear industry as governments look to cut costs and make savings. Already we are seeing signs of this process, with the sacred white elephant of Thorp possibly about to be sacrificed in the UK and the Canadian decision to sell off its CANDU nuclear reactor building company. So in short nuclear energy could now be facing a slow death by a thousand cuts over the next few decades.

Fossil fuels? Leaving aside all the environmental arguments and the issue of impending peak oil, the really large and critical resources of fossil fuels, such as the Tar Sands of Canada or Marcellus Shale deposits of the US would require a not inconsiderable expenditure of capital to fully exploit, and again were talking hundreds of billions of dollars here. Where is that money going to come from? Mention peak oil to the Saudis and theyll go into a rant about how theyve plenty of oil left, its just a matter of capital resources, if the world could find its way to lend them a few trillion they could easily double output or so they say! Either way, even fossil fuels will struggle to make ends meet in such a credit environment.

In short we really could not have picked a worst time to have a global credit crisis! Its possible some sort of new credit system to support these projects could be found, e.g. large numbers of people, companies and nations essentially buy shares in renewable projects. They are paid back not with money but with electricity or hydrogen sold to them at a heavily discounted rate. Another option is to look at the idea of so-called Islamic finance options where no interest is charged, which may prove in future to be a superior credit control mechanism to the interest based systems favoured at present.

Solutions?

We are in this mess because certain governments and corporations convinced themselves that they can defy the laws of economic gravity. Unfortunately the laws of economic gravity are as absolute as those discovered by Newton. It just takes a tad longer for them to assert themselves. So the solution is for us all to recognise this reality and take action accordingly.

Many governments are spending well beyond there means. As I point out here, the US drastically needs to cut its level of public spending. And top of my list for the budget axe would be the US military budget, farm subsidies and various corporate welfare and political pork barrel programs. By way of example, take the US carrier fleet, they have 11 of them, more than the rest of the worlds fleet combined! Do they really need all those carriers? Consider than new Carrier killing ballistic missiles (available to Russia, China and possibly Iran) have all but rendered carriers obsolete and of only very limited tactical use in an actual war. So why spend tens of billions of dollars on a vast fleet of them? Similarly, many southern European countries need to reassess whether their pension provisions to state workers are overly generous. Now leaving aside the various socialist arguments in favour of such policies, the bottom line is can these governments now afford it? I think not.

Also drastic spending cuts alone are not the only solution, indeed by depressing the economy they can actually make things worse. And it is essential that certain public services get preserved due to the hardship the withdrawal of such services would produce and the fact that the it will simply result in much higher costs being borne by the taxpayer (e.g. a recent survey found the NHS was actually one of the most cost efficient health services in the world, America was towards the bottom, so privatising health care would likely just increase the cost of health care to citizens not decrease them). I discuss this issue in an article here regarding the British railways.

No, if we want decent public services then taxes need to go up as well. The mantra of those on left is that we should tax the rich as they have most of the wealth. While true, and indeed its inevitable that as the rich hold much more disposable income and they will have to take a fairly heavy hit. Much of their wealth isnt exactly in the form thats easy to pay taxes with. Its a tad inconvenient trying to pay your taxes with jars of caviar and the keys to ones Porsche. Also, chances are a lot of the money that they have that could be used to pay higher taxes will just disappear into offshore bank accounts. The antics of the Irish government trying to get the money off of bankrupt property developers under NAMA (National Asset Management Agency, Irelands bad bank) should give you an idea of the problems were discussing (see here and here). So while yes the rich have to accept that their taxes will rise more than the rest of us, we need to be practical and accept we cant magically solve the whole problem just by taxing the rich.

Perhaps a bit of a more egalitarian approach would be new forms of taxation. A carbon tax would be an idea. This would be useful in discouraging fossil fuel use and levelling the playing field for renewables as well as encouraging energy efficiency, thought the devil is in the details. Another idea is a so-called Tobin tax on international investment transactions. This would not only generate significant revenues but it would discourage the sorts of crazy market speculation that led to this crisis in the first place. There are a number of measures we could take to claw back money held in off-shore tax havens, ranging from high trade taxes with such nations, currency exchange taxes (or a point blank refusal to honour or handle the currency of such nations) to more radical solutions (see Comedian Mark Thomas plans to invade Jersey). In the US theyll probably need to look at higher rates of petrol duty and VAT, bringing both up towards European levels to meet Americas near European levels of public spending.

The issue of the gold standard is often brought up by libertarians, and indeed the mantra from them is to put all youre money into gold right now. While they may have a point here, I would urge caution. Investing in gold is not a risk free decision. Gold is a commodity and its price rises and falls like that of any commodity depending on supply and demand issues. If you invest in gold and the price of gold falls in future (and personally I think its over valued right now due to market speculation) youll risk loosing rather a lot. And also by betting on gold youre betting on high inflation rates in the future. While certainly a risk, its far from a certainty. In the eurozone for example the Germans and French are going to fight tooth and nail to avoid that happening. Indeed theyd sooner see Ireland, Greece and Italy default on or restructure some debts rather than see inflation wipe out the savings of millions of registered voters. And gold is a tad inconvenient form in which to hold ones wealth, as I noted earlier you cant exactly buy two fish suppers with a gold nugget!

As far as the gold standard goes, while I can see arguments in its favour as a temporary confidence building measure post any debt crisis (bring it in now would likely have the opposite effect) I wont see it as a long term option. There are various strong arguments for and against the gold standard and Id side with the against position. There is a reason why governments abandoned the gold standard that are as applicable now as back then. But like I said, it could be a temporary measure taken after any crisis just to help turn things around and get the credit markets up and running.

Ultimately thought we need to reassess the issue of lending. When I was a lad, and that wasnt that long ago, you went into a bank for a loan and met the manager. If the first words out of his mouth were who the hell are you? he certainly wasnt going to give you a mortgage. Hed only do that if you were a known customer of the bank whod proved you could regularly pay your bills and meet your financial obligations. He certainly wont repackage your debt, mix it up with those of lots of other people and try and sell them off in the bond market, largely because nobody with any sense would buy the debts of a random stranger! So we need to reassess the rules of lending and credit. As Ive noted earlier this may even go as far as overturning the idea of interest on loans. And its particularly governments and large corporations where this applies. While this will restrict the flow of capital somewhat, in the case of governments thats not necessarily a bad thing as we dont want them lapsing into the lazy habit of trying to borrow their way out of short term problems.

Reality bites

Unfortunately, the reality is that well meaning as all the measures Ive discussed above might be, the chances of them being adopted until after weve slid into some sort of crisis are now slim to nil. As Ive pointed out in other articles before, the problems of the eurozone and the dollar are largely a result of short term politics that are difficult to overcome. People are unwilling to accept tax cuts, the mantra of the tea party is essentially big government get off our backs .except the bit that gives me a job, cheap subsidised products (cars, Big Mac’s, cheap flights, self-assembly furniture, etc.) and freeways to drive on. Many parts of the US that are the heartland of the tea party are also the US states most dependant on Federal spending and indeed receive much more money from Uncle Sam that its citizens pay out in taxes. Similarly, if any government, especially in the US, tries to put up taxes they find theyve committed political suicide as the citizens, often those on the right who benefit most from taxes, are dead set against paying them. We all need to accept the public services are both necessary and cost money and someone, that being us tax payers, needs to pay for them.

In short, my view is that some sort of sovereign debt crisis over then next decade or so is now inevitable. But contrary to what the economists will have you believe the consequences of that will not be that the world will stop turning and well all be sent flying off into space. Much of what the corporate news media has been reporting recently regarding the current crisis is about as accurate an assessment as the Day after Tomorrow is regarding climate change. Again, many of these experts are the same people who will loose big when the gravy train comes off the tracks.

Yes things will get bad. How bad? Its difficult to say as it depends on the speed at which we all wake up to the crisis, but they certainly wont be catastrophic, and it will be the very wealthy at the top who will ultimately take the major hit. And it will also present us with the opportunity to roll back certain policies, try out new ones and build a more sustainable global economy. There is light at the end of the tunnel, its just a question of how long the tunnel is and do we really have to go into it in the first place.

So weve had riots in London the last few nights, which are now spreading to other cities countrywide. As many people have been saying, Im not the least surprised at this turn of events.

Firstly, the initial trigger for the riot was the shooting dead of a suspected gun armed criminal. However, the usual murkiness that surrounds any shooting of anyone by the Metropolitan police is starting to emerge. Like the controversial shooting dead of Charles de Menezes, Harry Stanley or Anne Sanderson questions are swirling about whether the police went all trigger happy on Mark Duggan (that he fired not shots and indeed may not even have been armed)….again. And as with all these cases, and the killing of Ian Tomlinson by riot police, questions of excessive use of force are being raised and it appears that the police complaints commission is, as always, basically toothless and unlikely to ever prosecute the cops for any crime they commit. It is unsurprising how such constant behaviour of the police, literally getting away with murder, is going to have a backlash.

Another problem has always been this undercurrent of racism within the UK police force. Now Im not saying every officer is racist, I know the odd officer or Gardai back home and they do not fit the sterotype, but quite a few coppers are racists. Ask anyone of an ethnic minority and theyll inevitably have some tale of how they had a run in with the cops where they took things way to far, up to the point where they were inevitably forced to ask the question (in their head or out loud) is this because Im black?.

I had my own little experience of this once a few years ago in Brussels. I was enjoying a late night pint of one of the many local brews when I heard several distinct English voices (easily heard in a French speaking city where speaking English is practically a criminal offence) at another table. They were coppers, senior ones too from the sounds of it, discussing the Steven Lawrence case. A strong racist overtone was clear within these discussions, along the lines of what else would a black kid be doing in a white neighbourhood but causing trouble (out for a walk? visiting friends? waiting to catch a bus home?). Clearly the lessons of the MacPerson report have not been taken on board by certain elements of the force.

And the police have also been accused of being very right wing and favourable towards certain parties, notably the BNP. One guy I know who used to run a left-wing book store was telling me how his store window got smashed in by local BNP thugs. He knew it was them, as theyd been in the shop the day before (apparently they were upset as he was selling a less than flattering book about Enoch Powell or something) and threatened him, and two little old ladies, but being the brave defenders of the white race that they were they went away with they’re tails between their legs when they realised he and the ladies weren’t going to back down and snuck back under cover of darkness. Of course you’re man (shop owner) called the coppers…after they finally showed up (many hours later), did they do anything? Youre joking right! And I mean, one of the skinheads was right across the road keeping watch and youre man pointed to him and told the cops that that was one of the guys in the store the previous day making threats, I mean are cops really that dumb that they cant put two and two together? Did they arrest anybody? Of course not! And as anyone who has ever been to a peaceful direct action protest will know its usually the cops who initiate violence as some seem to delight in the opportunity to beat up a few lefties. And the whole case of Mark Kennedy, which I discussed a few months ago, where the cops were willing to waste a valuable undercover agent for ten years just to try and arrest a load of fluffy hippies (to quote one police source). They could have maybe used the same time and millions of taxpayers money to go after some real criminals like you know, drug dealers or people traffickers.

Indeed this is one of the other criticisms levelled at the police. That certain elements of the force seem to like going for soft targets. Rather than taking on violent criminals, instead they waste their time arresting law abiding citizens for minor offences, like blowing ones nose. And I would note that I know a few coppers and theyll tell you that ya some of their colleagues, especially the traffic cops and some elements of uniform are very prone to this sort of behaviour. He could be sitting on top of a knife wielding drug dealer who hes just collared screaming into his radio for backup, and he wont get any, well not until a suitable period of time has passed that they can be guaranteed that the threat of any serious violence has passed, but still be able to put down that they “helped” to take a violent drug dealer into custody. I mean, those drug dealer types are feckin dangerous blokes, somebody should lock them up…oh! wait thats supposed to be our job! Meanwhile complain about the old lady next door taking your kids football and three squad cars will show up!

There are reports from the recent rioting indeed of the police merely sitting in vans watching it all while filling in Health and Safety forms. Of course, theyve quite a few things on theyre minds, like how will they cope with redundancy and everything! One of the golden rules of government is, dont fuck with the policing budget. Being a cop is a difficult job (my criticism of some elements of the police force aside) and the pay isnt exactly great, but it has one or two perks. All the kinky sex you want (given the ready availability of handcuffs and uniforms ;D), easy to gain membership of certain clubs (Freemasons, for example |-| or anywhere Murdoch’s cronies hang out) and job security (something which is very rare in many other professions these days). Cameron and Osborne broke this golden rule, so its hardly surprising that both now and during the student fees protests, it seems the cops arent theyre usually bash happy selves.

And recent corruption allegations relating to the News International bribery of police hasnt of course helped matters. Indeed the slow pace of said investigations seems to support the notion of one law for the rich and another for everyone else.

And one has to raise various social issues present in many UK inner city suburbs too. As I stated in a past post (regarding Glasgow “ned culture“), many in these communities, which were once thriving and important industrial centres, feel abandoned by society. Some have now seen three generations of the family grow up with little to no serious job prospects. They are caught in a poverty and welfare trap that was created for them by the laize faire policies of past Tory governments. This has led to a vicious cycle developing of alcoholism, drug abuse and the breeding of gang culture, of which it is probable (but still unproven, innocent until proven guilty guys) Mark Duggan was a member of. Also its is clear that the social problems of the inner city suburbs has led to a breakdown of parental controls. Either because some parents dont care about what their kids get up to are they are too busy working ridiculous hours and holding down a job to keep track of the kids.

In short, Im not excusing the rioters in any way for their actions. Im merely highlighting the fact that riots dont just happen. Theres always a reason beyond the mindless thugs tabloid headlines. And in this case the mismanagement of the police force by the present and past governments and an unwillingness to confront certain realities within the social fabric of Britain is most firmly to blame.

So what can be done? Firstly tackling the chronic social problems of these communities head on. That means getting jobs for these people, and I mean real jobs with a decent pay and career prospects, not stacking shelves at Tesco’s. It also means investing in these communities, and I dont just mean money but the time of politicians as well. When was the last time you saw a sitting PM go on walk about in an inner city deprived suburb?

We also need to review the police force. I would advocate the radical step of a complete ban on recruitment of any male WASPS (white anglo-saxon protestants) for say 5-10 years. That would turn off the BNP tap and would quickly redress the racial, gender and political imbalances within the police services. The current ban on BNP membership should be extended to include other organisations, such as the Freemasons, and this should be carried over to other elements of the judiciary (i.e. judges) too. Furthermore a purge of the police and judiciary may now be in order. We have MI5 and MI6 sitting on their asses (not 9 till 5, more like 10:30 to 16:00 ;)) so lets let them loose on the coppers and have them finger the racists and the corrupt cops within the force and get them thrown out. Similarly we need to be carrot and stick here. The many good coppers need to be rewarded for their services to society so I would advocate raising of police pay and rolling back the proposed Tory cuts. This would also serve to encourage recruitment and motivate the police forces.

Has the silly season started already? Well its good to see that the old-geezers-that-read-the-Daily-Mail-an-wha-fought-in-the-war-like-(least we think we did)-that-reckon-we-should bring-back-hangin-an-send-all-the-immigrants-home-even-the-ones-who-were-born-here generation have found the internet. What a pity they brought their narrow bigoted medieval world view with them. One of the problems with these you-gov polls, and many internet petitions in general, is the ease with which they can be abused. One can only vote to support the measure, not vote against it.http://www.independent.co.uk/opinion/commentators/joan-smith/joan-smith-edemocracy-or-a-forum-for-bullies-2333180.html

Had someone proposed a poll suggesting that Comedian Mark Thomas take on capital punishment be adopted, I reckon theyve have won over. Incidentally, his quip was that capital punishment should be brought back but made voluntary. You can opt in to capital punishment, specify a list of things that you reckon should be hanging offences (dog shitting on lawns, dropping litter, failing to indicate when changing lanes, what ever takes youre fancy really) and if YOU get ever caught doing any of these, then they hang you for it :>>!

But seriously, I cant believe we need to have this debate, but since the old Daily Mail geezers brought it up…Whats wrong with capital punishment? Well firstly its a concept built on a series of falsehoods. Firstly, that our criminal justice system is infallible and always works perfectly. Not true, its probable that a significant number of cases lead to some form of miscarriage of justice. Consequently supporters of capital punishment are prepared to see innocent people killed just to satisfy their egos. Such judicial murder has little moral difference between it and the morality of the murderer himself. Also jurys might be less willing to convict if they know its a hanging offence rather than jail, hence the conviction rate for actual murders will likely fall not rise.

The second falsehood of capital punishment is that it acts as a deterrent and prevents murders. There is no evidence to support this, indeed the murder rates in many countries with capital punishment (such as America) is often much higher than in other countries without it (such as Britain or Canada). Its also argued that the majority of murders are heat of the moment affairs, and thus capital punishment is unlikely to act as any form of deterrent in such circumstances. It could make some hardened criminals think twice, but generally I suspect it will mean them adopting a more ruthless policy of leaving no living witnesses if things go wrong (e.g. a bank robber accidentally kills a guard, game theory would say his best course of action, under a capital punishment regime, would be to kill everyone else in the room and thus reduce the probability of him being convicted, and if he gets caught anyway, what are they going to do? hang him ten times!).

The third falsehood is that there is a humane way of executing someone, but theres not (other than making them listen to all the 4,000 episodes of the Archers one after the other without a break). Even the lethal injection process used in the states is now being questioned.

Inevitably capital punishment meets the terms of cruel and unusual punishment. This would put the UK in breach of various EU treaties requiring it to leave the EU (not that that would put off the Daily Mail lot who want that anyway) but heres one that will throw them in a tizzy  it would also invalidate a number of extradition treaties with Englands neighbours! Hence you commit a murder and dont want to be hung for it? Hop on a boat and go to France or Ireland. Worried about being caught at the border? Go via Northern Ireland and just drive south, no border controls of any kind. Even if the French or Irish police catch you, they cannot extradite you back to Britain if the brits have capital punishment, so rather than doing 25 years in Strangeways, youll do a life sentence on beaches of le Cote du Azur B), oh la la!

And of course, as Scotland has a separate judicial system (youll note my use of the E word above), and its unlikely that such a proposal would get past a Scottish parliament, you might only need to head North into Caledonia (again no border controls, only 8 hours drive from London) and hide out in Paisley…tho I would warn you that survival chances in Paisley for a Englishman are probably less than those on death row!

As Pierrepoint, one of Britains last hang men, put it I have come to the conclusion that executions solve nothing, and are only an antiquated relic of a primitive desire for revenge. Or as Gandhi put it an eye for an eye will leave the whole world blind.

All anyone who proposes bringing back hangin succeeds in demonstrating is that he hasnt a clue what hes talking about. Its a tough sound bite, makes you sound hard, but its soft on logic and a morally bankrupt proposal that would create far more problems that it solves. So thanks guys for letting us know to ignore anything you propose in future.

Oh, and read Charlie Brookers take on this here. Word of warning, its a bit dark!

A strange story popped up in the last few days claiming that Louise Mensch, the hot young Tory Chick-lit writer, one of the MPs who gave Murdoch (Aka Dr Magoo) a grilling last week, that she had taken drugs at an EMI event (about 10 years ago), and worse that shed associated there with known Socialists (Gasp! I hope she didnt catch anything!). Beeb take on it here.

Now what was strange about this was how it emerged, as the Guardian reports, it seems the story got going when a blogger associated with the Daily Telegraph confronted her with information (photos, etc.) and …hold up…did I say Daily Telegraph? Since when have they gone for sleazy tabloid stories? And arent they the same paper who stitched up Vince Cable a few months back and did Murdoch a big favour? And it seems strangely coincidental that a blogging freelance journalist just happens upon photos from 10 years ago, the week after Ms Mensch grilled Murdoch?…much like it seemed oddly coincidental that a similar group of freelancers for the Telegraph would ambush Vince Cable the same time hed been given the job of looking into the BSB deal…and that David Cameron took Rupert’s minions out to lunch (“Smithers” Murdoch and “Sideshow” Brooks) a few days later…and dont get me started on the Chris Huhme stitch up! Now Im not say that, say Murdoch has a large pile of dirt on every politician in Westminster and leaked said info to this journalist with the hope that the Daily Telegraph and Mail could then smear her with it while claiming plausible deniability, but thats certainly what it looks like might have happened.

Anyway, Ms Mensch has all but admitted that she probably did take drugs. Well good on her! She may be a right wing nut, but at least shes an honest right wing nut. As I pointed out in a previous post (regarding the War on Drugs which weve lost ), the vast majority of the UK population have tried drugs at some point. Hence any MP who denies ever taking any is either (a) lying or (b) lived his whole life in a gilded home counties cage and lacks the necessary real world experience to be an effective politician.

One of the key tools of control that Murdoch and other media tycoons have exerted over politicians is this belief that politicians must be whiter than white. That theyre arent allowed to do the sort of things and make the mistakes all the rest of us have made, even if they ultimately did it decades before entering politics. Arent people allowed to have a second chance? Turn over a new leaf? Well if youre Murdochs buddy, such as George W. Bush (who went thro a phase of alcoholism and drug use, but the Murdoch press (Fox News) spun that into a positive) you can but not if youre anyone else. We need to get over the fact that politicians are just people too and they can (and will) make mistakes. Part of the whole point of having a free press and freedom of expression is so that we can critique policies that are doomed to fail. Indeed, slight aside here, I can never understand how politicians can continue pushing a policy that they know is a bad idea simply to avoid being accused of doing a U-turn. Isnt a person entitled to change their mind when presented with new facts and opinions?

And the irony here of course, is that these same tabloid hacks exposing politicians are hardly the sort of people who should be lecturing the rest of us about living clean lifestyles. Indeed theyre likely sitting there in their office writing up a story on a politician, who may have taken some small quantity of drugs back when he was twenty, while our hack snorts out of a big communal bowl of coke, while taking a drag on his splif between paragraphs. How about a random drugs test on all the employees of one or two tabloids? I suspect youd find more booze and drugs in these lot than they found in Amy Winehouse.

And politicians need to get over this whiter than white issue themselves. As I pointed out in reference to Tommy Sheridan, who was caught out going into a Swingers club by the NoTW, the sensible course of action would have been for him to say and what of it? Its a free country? and then sue them for breeching his privacy. Instead he and the Scottish socialists self destructed and hes now doing porridge as a result.

I would hope that Ms Mensch gets to the bottom of who started these rumours regarding her and sues the pants of him. Of course the ideal scenario is the paper trail leads back to the Murdoch’s! That will make the next time Rupert & Co. appear before the committiee interesting!